Analyst raves over Penn Gaming-Barstool, sees 46% upside: 'Don't Bet Against Portnoy'

Published Tue, Sep 1 20209:15 AM EDTUpdated Tue, Sep 1 202010:14 AM EDT

(This story is only for CNBC Pro subscribers ) Penn National Gaming's investment in David Portnoy's Barstool Sports is nothing short of brilliant, pairing one of the largest online gambling platforms with a devout fanbase and brand, according to brokerage Craig-Hallum. Analyst Ryan Sigdahl praised Penn's decision to take a stake in Portnoy's site as the partnership "unlocks significant value for both parties and PENN shareholders." The firm initiated equity coverage on Penn with a "Buy" rating and set a price target of $75, 46% above where shares closed on Monday at $51.10. "Dave Portnoy Is A Marketing Genius," stated the note. "If millions of people follow his pizza reviews and stock trading, how many do you think will follow his sports betting recommendations?" "Barstool has a large, growing and cult-like audience, of which ~half are millennials and 62% already bet on sports. Barstool will exclusively promote PENN's online offerings (including Barstool Sportsbook) for 40 years. Prepaid advertising (via investment) to a captive audience," the analyst wrote. "Don't Bet Against Portnoy," the note said. Penn announced in January that it's taking a 36% stake in Portnoy's Barstool for about $163 million in cash and convertible preferred stock. The move is widely seen as a strategic bet by Penn that analysts say could reduce both its marketing and customer costs. The investment also represents a bet that the company will be able to lure younger gamblers into its retail and online offerings and lower the average age of its current clientele. Penn, which reserves the option to increase its stake in Barstool over time, has said it plans to increase its ownership to about 50% over three years. Despite the coronavirus's impact on collegiate and professional sports leagues, investors have lauded the newfound partnership and snapped up Penn's stock in response. Its equity has nearly doubled in 2020 from $25 per share in January to $51 as of Monday's close. "Retail casinos provide strong cash flow to fund online investments, and we believe potential upside from retail Barstool sportsbooks and bars is underappreciated," the Craig-Hallum analyst explained. "Moreover, we believe the strategic investment and partnership with Barstool creates significant synergies to drive top 3 sports betting and iGaming market share but #1 profitability online. The combination of the Barstool audience, brand and marketing engine with Penn's largest state footprint create an unrivaled omni-channel offering," the note added. — CNBC's Michael Bloom contributed to this report.

David Portnoy, founder of Barstool Sports.

Adam Jeffery | CNBC

(This story is only for CNBC Pro subscribers)

Penn National Gaming's investment in David Portnoy's Barstool Sports is nothing short of brilliant, pairing one of the largest online gambling platforms with a devout fanbase and brand, according to brokerage Craig-Hallum.

Analyst Ryan Sigdahl praised Penn's decision to take a stake in Portnoy's site as the partnership "unlocks significant value for both parties and PENN shareholders."

The firm initiated equity coverage on Penn with a "Buy" rating and set a price target of $75, 46% above where shares closed on Monday at $51.10.

"Dave Portnoy Is A Marketing Genius," stated the note. "If millions of people follow his pizza reviews and stock trading, how many do you think will follow his sports betting recommendations?"